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Oil hits two-year high, topping $90 a barrel

December 22, 2010 |  1:34 pm

Unhappy holidays to the rest of us, from the oil market: Crude closed above $90 a barrel Wednesday, the first time the price has finished above that mark in more than two years.

February oil futures contracts in New York rose 66 cents to $90.48 a barrel.

Gaspump One catalyst for the latest move up was the government’s report that domestic crude inventories slid 5.3 million barrels last week, the third straight drop. That left supplies at 340.7 million barrels, their lowest level since February.

Last week's inventory drop may in part reflect maneuvering by refiners to reduce supplies that are subject to taxation at year's end in some places along the Gulf Coast, analysts said.

Still, if the U.S. economy continues to improve in 2011, that should lift oil demand, underpinning prices. The latest wave of cold weather in the U.S. and Europe also is boosting consumption expectations.

As for gasoline, the average price nationwide is poised to rise above $3 a gallon for the first time in two years, tracking oil's advance. We're already well above $3 in California.

Oil’s latest rally is part of a broad advance in raw-materials prices stoked by recent economic optimism -- and by the speculators that that optimism pulls into the commodity markets.

Crude has risen 12.5% since Nov. 17 and is up 14% year to date.

The Reuters/Jefferies CRB index of 19 major commodities rose 0.4% to 328.11 on Wednesday, also a two-year high. The index is up 15.8% this year, beating the 14.7% total return (price appreciation plus dividends) of the Standard & Poor’s 500 stock index.

Of course, the higher oil and other raw materials rise, the greater the likelihood that they will have a depressing effect on the economy, which in turn would act to curb demand for commodities. But history shows that expanding economies can go hand-in-hand with rising commodity prices for long periods.

-- Tom Petruno

Photo credit: Simon Dawson / Bloomberg News

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